FORM 10-K
(Annual Report)
Filed 03/17/14 for the Period Ending 12/31/13
Address
ONE CAESARS PALACE DRIVE
LAS VEGAS, NV 89109
Telephone
7024076000
CIK
0000858339
Symbol
CZR
SIC Code
7011 - Hotels and Motels
Industry
Casinos & Gaming
Sector
Services
Fiscal Year
12/31
http://www.edgar-online.com
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
(Mark One)
FOR THE FISCAL YEAR ENDED December 31, 2013 OR
Commission File No. 1-10410
CAESARS ENTERTAINMENT CORPORATION
(Exact name of registrant as specified in its charter)
Registrant’s telephone number, including area code: (702) 407-6000
SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT: Title of each class Name of each exchange on which registered
Common stock, $0.01 par value NASDAQ Global Select Market
SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT: None
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes No Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes No
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes No
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes No
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K.
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See definitions of "large accelerated filer," "accelerated filer" and "smaller reporting company" in Rule 12b-2 of the Exchange Act. (Check one):
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act). Yes No
The aggregate market value of common stock held by non-affiliates of the registrant as of June 30, 2013 was $529.9 million . As of March 1, 2014 , the registrant had 137,161,183 shares of Common Stock outstanding.
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
Delaware 62-1411755
(State of incorporation) (I.R.S. Employer Identification No.)
One Caesars Palace Drive, Las Vegas, Nevada 89109
(Address of principal executive offices) (Zip code)
Large accelerated filer Accelerated filer Non-accelerated filer Smaller reporting company
(Do not check if a smaller
CAESARS ENTERTAINMENT CORPORATION
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
We have proprietary rights to a number of trademarks used in this Annual Report on Form 10-K for the fiscal year ended December 31, 2013 (this "Form 10-K"), that are important to our business, including, without limitation, Caesars, Caesars Entertainment, Caesars Palace, Harrah’s, Total Rewards, Horseshoe, Paris Las Vegas, Flamingo, and Bally's. In addition, Caesars Interactive Entertainment, Inc., which is a majority-owned subsidiary of Caesars Growth Partners, LLC, has proprietary rights to the Slotomania, Playtika, Bingo Blitz and World Series of Poker ("WSOP") trademarks. We have omitted the registered trademark (®) and trademark (™) symbols for such trademarks named in this Form 10-K.
2
Page
Part I
Item 1 – Business 3
Item 1A – Risk Factors 10
Item 1B – Unresolved Staff Comments 29
Item 2 – Properties 30
Item 3 – Legal Proceedings 32
Item 4 – Mine Safety Disclosure 32
Part II
Item 5 – Market for the Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity
Securities 33
Item 6 – Selected Financial Data 35
Item 7 – Management’s Discussion and Analysis of Financial Condition and Results of Operations 36
Item 7A – Quantitative and Qualitative Disclosures About Market Risk 59
Item 8 – Financial Statements and Supplementary Data 60
Report of Independent Registered Public Accounting Firm 60
Consolidated Financial Statements 61
Notes to Consolidated Financial Statements 67
Item 9 – Changes in and Disagreements with Accountants on Accounting and Financial Disclosure 122
Item 9A – Controls and Procedures 122
Item 9B – Other Information 124
Part III
Item 10 – Directors, Executive Officers and Corporate Governance 125
Item 11 – Executive Compensation 125
Item 12 – Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters 125
Item 13 – Certain Relationships and Related Transactions, and Director Independence 125
Item 14 – Principal Accounting Fees and Services 125
Part IV
Item 15 – Exhibits, Financial Statement Schedules 126
PART I
ITEM 1. Business
Overview
Caesars Entertainment Corporation (referred to in this discussion, together with its consolidated entities where appropriate, as "Caesars," "Caesars Entertainment," the "Company," "we," "our" and "us"), a Delaware corporation, is the world's most diversified casino-entertainment provider and the most geographically diverse U.S. casino-entertainment company. We conduct business through our wholly owned subsidiaries, Caesars Entertainment Operating Company, Inc. ("CEOC") and Caesars Entertainment Resort Properties ("CERP") and their subsidiaries. We also consolidate Caesars Growth Partners, LLC ("CGP LLC"), which is a variable interest entity ("VIE") for which we have determined that we are the primary beneficiary.
As of December 31, 2013 , we owned and operated, or managed, through various subsidiaries, 52 casinos in 13 U.S. states and 5 countries. Of the 52 casinos, 39 are in the United States and primarily consist of land-based and riverboat or dockside casinos. Our 13 international casinos are land-based casinos, most of which are located in England. See Item 2, " Properties ." In addition, we operate an online gaming business and the World Series of Poker tournament and brand.
As of December 31, 2013 , our owned and managed facilities had an aggregate of approximately three million square feet of gaming space and approximately 42,000 hotel rooms. Our industry-leading customer loyalty program, Total Rewards, has approximately 45 million members. We use the Total Rewards system to market promotions and to generate customer play across our network of properties.
On January 28, 2008, Caesars Entertainment was acquired by affiliates of Apollo Global Management, LLC (together with such affiliates, "Apollo") and affiliates of TPG Capital, LP (together with such affiliates, "TPG" and, together with Apollo, the "Sponsors") in an all-cash transaction, hereinafter referred to as the "Acquisition." Subsequent to the Acquisition, our stock was no longer publicly traded. Effective February 8, 2012, as the result of our public offering, our common stock trades on the NASDAQ Global Select Market ("NASDAQ") under the symbol "CZR." In connection with the public offering, we effected a 1.742 -for- 1 split of our common stock. Unless otherwise stated, all applicable share and per-share data presented herein have been retroactively adjusted to give effect to this stock split.
Note references are to the notes to consolidated financial statements included in Item 8, " Financial Statements and Supplementary Data ."
Capital Structure
As described in Note 5 , " Caesars Growth Partners, LLC Transactions ," and Note 9 , " Debt ," in the fourth quarter of 2013, Caesars consummated two transactions, (1) creating the new CERP financing structure, formed primarily from our prior CMBS financing structure ("CMBS") and (2) the closing of transactions forming the new CGP LLC, in which we have a majority economic interest and management rights, but no voting control. CGP LLC is considered a variable interest entity and is consolidated into our financial statements. Our business is conducted through our wholly owned subsidiaries, CEOC and CERP, as well as through CGP LLC. See Item 2, " Properties ," for properties within each structure. Also see Note 9, “Debt,” for greater detail on the debt related to each entity structure.
Caesars Entertainment Operating Company (CEOC)
In addition to owning and operating its own properties, CEOC manages properties owned by both CERP and CGP LLC, as described below, as well as for other third parties under management agreements. A substantial portion of the financing for the Acquisition was comprised of bank and bond financing obtained by CEOC.
Caesars Entertainment Resort Properties (CERP)
In October 2013, Caesars and its wholly owned subsidiaries, Caesars Entertainment Resort Properties, LLC, and Caesars Entertainment Resort Properties Finance, Inc., which collectively comprise the entities in CERP, completed the Refinancing of CMBS and Linq/Octavius
Transaction described in “ Summary of 2013 Events.” As a result, CERP is also an issuer of a material amount of our bank and bond financing
and holds the sole interest in the holding companies that have title to six Caesars properties, which are managed by CEOC.
Caesars Growth Partners, LLC (CGP LLC)
In October 2013, Caesars and its subsidiaries, together with Caesars Acquisition Company (“CAC”) and CGP LLC, consummated the
Caesars Growth Partners, LLC Transaction described in “ Summary of 2013 Events” . Because the equity holders in CGP LLC receive returns
disproportionate to their voting interests and substantially all the activities of CGP LLC are related to Caesars, CGP LLC has been determined to be a variable interest entity. CAC is the sole voting member of CGP LLC; neither CAC nor CGP LLC guarantee any of Caesars’ debt. The creditors or beneficial holders of CGP LLC have no recourse to the general credit of Caesars Entertainment Corporation. Caesars has certain obligations to CGP LLC through the management and services agreements.
For accounting purposes, the transactions between CGP LLC and Caesars Entertainment and its subsidiaries have been determined to be a reorganization among entities under common control. Because substantially all the activities of CGP LLC are related to Caesars and due to the factors set forth below, we have concluded that we are required to consolidate it under accounting rules.
We have reached this conclusion based upon the weighting of a number of items, including the following: (i) the close association that CGP LLC has with Caesars, including the fact that all of the assets and businesses owned by CGP LLC were acquired from Caesars; (ii) Caesars, through CEOC, has an ongoing management agreement with each of the properties owned by CGP LLC; and (iii) Caesars has the obligation to absorb losses and the right to receive residual returns that could potentially be significant to CGP LLC. See Note 5 , " Caesars Growth Partners, LLC Transactions ," for greater detail on the transaction and our related accounting.
Description of Business
We have established a rich history of industry-leading growth and expansion since we commenced casino operations in 1937. We own, operate, or manage casino entertainment facilities in more areas throughout the United States than any other participant in the casino industry. In addition to casinos, our facilities typically include hotel and convention space, restaurants, and non-gaming entertainment facilities.
Caesars Palace, Harrah’s Las Vegas, Rio All-Suite Hotel & Casino, Bally’s Las Vegas, Flamingo Las Vegas, Paris Las Vegas, Planet Hollywood Resort & Casino ("Planet Hollywood"), and The Quad Resort & Casino ("The Quad") are located in Las Vegas and draw customers from throughout the United States and internationally. The Cromwell (formerly Bill's Gamblin' Hall & Saloon ("Bill's")), also in Las Vegas, was temporarily closed for renovations in February 2013 and is scheduled to reopen in the second quarter 2014. Harrah’s Laughlin is located near both the Arizona and California borders and draws customers primarily from southern California and the Phoenix metropolitan areas.
In northern Nevada, Harrah’s Lake Tahoe and Harveys Resort & Casino are located near Lake Tahoe and Harrah’s Reno is located in downtown Reno. These facilities draw customers primarily from northern California, the Pacific Northwest, and Canada.
Our Atlantic City casinos, Harrah’s Resort Atlantic City, Showboat Atlantic City, Caesars Atlantic City, and Bally’s Atlantic City, draw customers primarily from the Philadelphia metropolitan area, New York, and New Jersey.
Harrah’s Philadelphia, a combination harness racetrack and casino located south of Philadelphia, draws customers primarily from the Philadelphia metropolitan area and Delaware.
Horseshoe Baltimore, which is under development, will serve customers in the Baltimore/Washington metropolitan area and is expected to open in the third quarter of 2014.
Our Chicagoland dockside casinos, Harrah’s Joliet in Joliet, Illinois, and Horseshoe Hammond in Hammond, Indiana, draw customers primarily from the Chicago metropolitan area. In southern Indiana, Horseshoe Southern Indiana, a dockside casino complex located in Elizabeth, Indiana, draws customers primarily from northern Kentucky and southern Indiana.
In Louisiana, Harrah’s New Orleans, a land-based casino located in downtown New Orleans attracts customers primarily from the New Orleans metropolitan area. In Bossier City, Horseshoe Bossier City, a dockside casino, and Harrah’s Louisiana Downs, a thoroughbred racetrack with slot machines, caters to customers in northwestern Louisiana and east Texas, including the Dallas/Fort Worth metropolitan area.
On the Mississippi Gulf Coast, the Grand Casino Biloxi, located in Biloxi, Mississippi, caters to customers in southern Mississippi, southern Alabama, and northern Florida.
Harrah’s North Kansas City, a dockside casino, draws customers from the Kansas City metropolitan area. Harrah’s Metropolis is a dockside casino located in Metropolis, Illinois, on the Ohio River, and draws customers from southern Illinois, western Kentucky, and central Tennessee.
Horseshoe Tunica, Harrah’s Tunica, and Tunica Roadhouse Hotel & Casino, dockside casino complexes located in Tunica, Mississippi, are approximately 30 miles from Memphis, Tennessee, and draw customers primarily from the Memphis area.
Horseshoe Casino and Bluffs Run Greyhound Park ("Bluffs Run"), a land-based casino and pari-mutuel facility, and Harrah’s Council Bluffs Casino & Hotel, a newly land-based casino facility, are located in Council Bluffs, Iowa, across the Missouri River from Omaha, Nebraska. At Bluffs Run, we own the assets other than gaming equipment and lease these assets to the Iowa West Racing Association ("IWRA"), a nonprofit corporation, and we manage the facility for the IWRA under a management agreement that expires in October 2024. The license to operate Harrah’s Council Bluffs Casino & Hotel is held jointly with IWRA. Our Sponsorship and Operations Agreement with IWRA terminates in December 2015, and includes options to extend the term of the agreement for five succeeding three-year terms.
As of December 31, 2013, we owned and operated four casinos in London: the Sportsman, The Playboy Club London, The Casino at the Empire and The Golden Nugget. However, in February 2014, we closed The Golden Nugget casino. Our casinos in London draw customers primarily from the London metropolitan area, as well as international visitors. We also own Alea Nottingham, Alea Glasgow, Manchester 235, Rendezvous Brighton, and Rendezvous Southend-on-Sea in the provinces of the United Kingdom, which primarily draw customers from their local areas. Pursuant to a concession agreement, we also operate two casinos in Egypt, The London Club Cairo (which is located at the Ramses Hilton), and Caesars Cairo (which is located at the Four Seasons Cairo), that draw customers primarily from other countries in the Middle East. Emerald Safari, located in the province of Gauteng in South Africa, draws customers primarily from South Africa.
We also own and operate Bluegrass Downs, a harness racetrack located in Paducah, Kentucky.
We earn fees through our management of three casinos for Indian tribes:
We also earn fees through our management of the following casinos:
CIE, which is a majority-owned subsidiary of CGP LLC, owns the World Series of Poker ("WSOP") tournaments, and we license trademarks for a variety of products and businesses related to this brand. CIE also operates an online gaming business providing for certain real money games in Nevada, New Jersey, and the United Kingdom; "play for fun" offerings in other jurisdictions; and social games on Facebook and other social media websites and mobile application platforms, such as Slotomania.
Sales and Marketing
We believe that our North American distribution system of casino entertainment provides us the ability to capture a disproportionate share of our customers’ entertainment spending when they travel among markets, which is core to our cross-market strategy. In addition, where we have multiple properties in markets or regions, we believe that we are able to capture more of our customers' gaming dollars than in those markets where we have single properties competing individually against outside competition. For instance, in Las Vegas we believe our customer stickiness in the center strip generates increased revenues. We believe our industry-leading customer loyalty program, Total Rewards, in conjunction with this distribution system, allows us to capture a growing share of our customers’ entertainment spending and compete more effectively. For example, we believe our collection of distinctly branded properties in Las Vegas, tied together through Total Rewards, helps us capture a greater share of wallet with customers than we would otherwise achieve.
• Harrah’s Phoenix Ak-Chin, located near Phoenix, Arizona, which we manage for the Ak-Chin Indian Community. Harrah’s Phoenix Ak-Chin draws customers from the Phoenix metropolitan area;
• Harrah’s Cherokee Casino and Hotel, which we manage for the Eastern Band of Cherokee Indians on their reservation in Cherokee, North Carolina. Harrah’s Cherokee draws customers from eastern Tennessee, western North Carolina, northern Georgia, and South Carolina; and
• Harrah’s Rincon Casino and Resort, located near San Diego, California, which we manage for the Rincon San Luiseno Band of Mission Indians. Harrah’s Rincon draws customers from the San Diego metropolitan area and Orange County, California.
• Caesars Windsor in Windsor, Ontario, which we manage for the Ontario Lottery and Gaming Corporation;
• Horseshoe Cleveland casino and Horseshoe Cincinnati casino in Ohio, which we manage for Rock Ohio Caesars LLC ("ROC"), a venture with Rock Ohio Ventures, LLC ("Rock Gaming") in which we have a 20% equity interest;
Our Total Rewards program is structured in tiers, providing customers an incentive to consolidate their entertainment spending at our casinos. Total Rewards customers are able to earn Reward Credits at all of our casino entertainment facilities located in the U.S. and Canada for on-property entertainment expenses, including gaming, hotel, dining, and retail shopping. Total Rewards members can also redeem Reward Credits for on-property amenities or other off-property items such as merchandise, gift cards, and travel. Customers earn status within the Total Rewards program based on their level of engagement with us in a calendar year through both gaming and hospitality expenditures. Total Rewards tiers are designated as Gold, Platinum, Diamond, or Seven Stars, each with increasing sets of customer benefits and privileges.
Separately, customers are provided promotional offers and rewards based on the ways in which they choose to engage with us. These benefits encourage new customers to join Total Rewards and provide existing customers with incentives to consolidate their entertainment spend at our casinos. Additionally, our customers have additional methods to earn and redeem Reward Credits including the Total Rewards Visa credit card and partnerships with Starwood Hotels and Resorts and Excentus, which operates the Fuel Rewards Network.
We have developed a database containing information about our customers, aspects of their casino gaming play, and their preferred spending choices outside of gaming. We use this information for marketing promotions, including through direct mail campaigns, the use of electronic mail, our website, mobile devices, social media, and interactive slot machines.
Patents and Trademarks
We hold the following trademarks used in this document: Harrah's, Caesars, Grand Biloxi, Bally's, Flamingo, Paris, Caesars Palace, Rio, Harveys, Total Rewards, Bluffs Run, Reward Credits, Horseshoe, Seven Stars, Tunica Roadhouse, The Cromwell (formerly Bill's), Louisiana Downs, The Quad Resort & Casino. Trademark rights are perpetual provided that the mark remains in use by us. CGP LLC holds a trademark license for Planet Hollywood used in connection with Planet Hollywood in Las Vegas, which will expire in 2045. In addition, CIE holds proprietary rights to the Slotomania, Playtika, Bingo Blitz, World Series of Poker and WSOP trademarks. We consider all of the above marks, and the associated name recognition, to be valuable to our business.
The development of intellectual property is part of our overall business strategy, and we regard our intellectual property to be an important element of our success. While our business as a whole is not substantially dependent on any one patent or combination of several of our patents or other intellectual property, we seek to establish and maintain our proprietary rights in our business operations and technology through the use of patents, copyrights, trademarks, and trade secret laws. We file applications for and obtain patents, copyrights, and trademarks in the United States and in foreign countries where we believe filing for such protection is appropriate. We also seek to maintain our trade secrets and confidential information by nondisclosure policies and through the use of appropriate confidentiality agreements. As of December 31, 2013, Caesars had 26 active U.S. cases and 8 active foreign cases. CGP LLC had five active U.S. cases and three active foreign cases. The U.S. cases have patent terms that variously expire between 2015 and 2031.
We have not applied for patents or the registration of all of our technology or trademarks, as the case may be, and may not be successful in obtaining the patents and trademarks for which we have applied. Despite our efforts to protect our proprietary rights, parties may infringe our patents and use information that we regard as proprietary and our rights may be invalidated or unenforceable. The laws of some foreign countries do not protect proprietary rights to as great an extent as do the laws of the United States. In addition, others may be able to independently develop substantially equivalent intellectual property.
Competition
The casino entertainment business is highly competitive and characterized by competitors that vary considerably by their size, quality of facilities, number of operations, brand identities, marketing and growth strategies, financial strength and capabilities, level of amenities, management talent, and geographic diversity. In most markets, including Las Vegas and Atlantic City, we compete directly with other casino facilities operating in the immediate and surrounding market areas, while in others, including Atlantic City, we face additional competition from nearby markets.
In recent years, many casino operators, including us, have been reinvesting in existing markets to attract new customers or to gain market share, and as a result competition in existing markets has intensified, especially in regional markets. Many casino operators, including us, have invested in expanding existing facilities, developing new facilities, and acquiring established facilities in existing markets. The expansion of existing casino entertainment properties, the increase in the number of properties, and the aggressive marketing strategies of many of our competitors has increased competition in many markets in which we compete, and we expect this intense competition to continue.
The expansion of casino entertainment into new markets also presents competitive issues for us that have had a negative impact on our financial results. In particular, our facilities have been adversely impacted by the addition of gaming and room capacity, particularly our operations located in New Jersey with the expansion of gaming in Maryland, New York and Pennsylvania, and our operations located in Nevada with the expansion of gaming in California. Several states and Indian tribes are also considering enabling the development and operation of gaming facilities in their jurisdictions.
In addition, while we do not believe it to be the case, some have suggested that Internet gaming could create additional competition for us and could adversely affect our brick and mortar operations. We also compete with other non-gaming resorts and vacation areas, with various other entertainment businesses, and with other forms of gaming, such as lotteries.
The casino entertainment industry is also subject to political and regulatory uncertainty. See Item 7, " Management’s Discussion and Analysis of Financial Condition and Results of Operations — Consolidated Operating Results " and Item 7, " Management’s Discussion and Analysis of Financial Condition and Results of Operations — Regional Operating Results ." See also Exhibit 99.1 to this Form 10-K.
Summary of 2013 Events
CEOC Financing Transactions
In January and February 2013, CEOC converted $133.9 million aggregate principal amount of original maturity revolver commitments held by held by consenting lenders to Term B-6 Loans and terminated $133.9 million principal amount of revolving commitments of extending lenders.
In February 2013, CEOC completed the offering of $ 1,500.0 million aggregate principal amount of 9% senior secured notes due 2020, the proceeds of which were used to repay $1,433.3 million of CEOC's existing term loans at par. In conjunction with this transaction we amended our existing CEOC Credit Facilities as described in Item 7 - Key Business Initiatives and Financing Transactions.
Horseshoe Cincinnati
In March 2013, ROC opened the 100,000-square-foot Horseshoe Cincinnati casino in Cincinnati, Ohio, which we manage for ROC for a fee under a management agreement that expires in March 2033.
ThistleDown Racino
In April 2013, the 71,700-square-foot ThistleDown Racino near Cleveland, Ohio opened its slot gaming operations. We manage this facility for ROC under a management agreement.
Conrad Punta del Este Resort and Casino
In May 2013, we formed a strategic relationship with Enjoy S.A. (“Enjoy”) in Latin America. Enjoy acquired 45% of Baluma S.A., our subsidiary that owns and operates the Conrad Punta del Este Resort and Casino in Uruguay (the “Conrad”), in exchange for total consideration of $139.5 million. After customary deductions for expenses associated with the closing, we received $50.4 million in cash (net of $29.7 million of cash deconsolidated), a note receivable of $31.9 million, and a 4.5% equity stake in Enjoy.
In connection with the transaction, Enjoy assumed control of the Baluma S.A. board and primary responsibility for management of the Conrad. Upon completion of the transaction, we deconsolidated Baluma S.A. from our financial statements and began accounting for Baluma S.A. as an investment in non-consolidated affiliates utilizing the equity method of accounting.
Caesars Acquisition Company / Caesars Growth Partners, LLC Transactions
CAC was formed to directly own 100% of the voting membership units in CGP LLC. CGP LLC was formed for the purpose of acquiring certain businesses and assets of Caesars Entertainment.
On October 21, 2013, the CGP LLC joint venture was formed between subsidiaries of Caesars Entertainment and CAC through the execution of the series of transactions described below:
(i) The Class A common stock of CAC was made available via a subscription rights offering by Caesars Entertainment to its shareholders as of October 17, 2013, the record date (the "CAC Rights Offering"), whereby each subscription right entitled its holder to purchase from CAC one share of CAC's Class A common stock or the right to retain such subscription right;
(ii) Sponsors exercised their basic subscription rights in full and purchased $457.8 million worth of CAC's Class A common stock at a price of $8.64 per whole share;
Pursuant to the terms of the CGP LLC transaction, CGP LLC is obligated to issue additional non-voting membership units to us to the extent that the earnings from CIE's social and mobile games business exceeds a specified threshold amount in 2015. The number of units to be received is capped at a value of $225 million divided by the value of the non-voting units at the date of the CGP LLC transaction.
The closing of the CAC Rights Offering for subscription rights not previously exercised by recipients of the rights, and for any over-subscription privileges, including overover-subscription by the Sponsors, occurred on November 18, 2013. CAC distributed a total of 135,771,882 shares of Class A common stock to the holders of subscription rights who validly exercised their subscription rights and paid the subscription price in full. CAC received aggregate gross proceeds from the CAC Rights Offering of approximately $1,173.1 million. See Note 5 , " Caesars Growth Partners, LLC Transactions ."
The transactions above were considered to be a reorganization of entities under common control; accordingly, we have not recognized any gain or loss, and CGP LLC has recorded the acquired assets on the same basis as previously recorded by Caesars Entertainment.
Refinancing of CMBS and Linq/Octavius ("CERP Transaction")
On October 11, 2013, CERP, Caesars Entertainment Resort Properties Finance, Inc. and certain subsidiaries of CEOC (comprised of Harrah’s Atlantic City Holding, Inc.; Harrah’s Las Vegas, LLC; Harrah’s Laughlin, LLC; Flamingo Las Vegas Holding, LLC; Paris Las Vegas Holding, LLC; and Rio Properties, LLC; each a wholly owned subsidiary of Caesars, and formerly collectively known as the "CMBS Properties") (i) completed the offering of $1,000 million aggregate principal amount of their 8% first-priority senior secured notes due 2020 and $1,150 million aggregate principal amount of their 11% second-priority senior secured notes due 2021 (together with the 8% first-priority senior secured notes due 2020, the “CERP Notes”) and (ii) entered into a first lien credit agreement governing their new $2,769.5 million senior secured credit facilities, consisting of senior secured term loans in an aggregate principal amount of $2,500.0 million (the “CERP Term Loans”) and a senior secured revolving credit facility in an aggregate principal amount of up to $269.5 million.
The net proceeds from the offering of CERP Notes and the borrowings under the CERP Term Loans, together with cash, were used to retire 100% of the principal amount of loans under the mortgage and mezzanine loan agreements entered into by certain subsidiaries of the CMBS Properties, repay in full all amounts outstanding under the senior secured credit facility entered into by Caesars and Caesars Linq, LLC and Caesars Octavius, LLC, each an indirect subsidiary of Caesars, and to pay related fees and expenses.
Macau Land Concession
On November 1, 2013, the Company completed the sale of all of the equity interests of the subsidiaries that held the Company's investment in a land concession in Macau (the "Macau Land Concession") to Pearl Dynasty for a total sales price of $438.0 million. Net proceeds from the sale, after commissions and customary closing costs, amounted to approximately $420 million.
(iii) CAC used the proceeds from the exercise of the basic subscription rights in (ii) above to purchase 100% of the voting units of CGP LLC;
(iv) CGP LLC in turn used $360.0 million of the proceeds received from CAC in (iii) above to purchase from CEOC (we refer to the following assets as the "Purchased Assets"):
a. the equity interests of a subsidiary of PHW Las Vegas, LLC that holds all of the assets and liabilities formerly held directly by PHW Las Vegas, LLC, including Planet Hollywood;
b. the equity interests of Caesars Baltimore Investment Company, LLC, the entity that indirectly holds interests in the owner of Horseshoe Baltimore in Maryland (the "Maryland Joint Venture"), a licensed casino development project expected to open in the third quarter of 2014; and
c. a 50% interest in the management fee revenues of PHW Manager, LLC, which manages Planet Hollywood, and Caesars Baltimore Management Company LLC, which holds an agreement to manage the Maryland Joint Venture.
(v) Caesars Entertainment contributed all of the shares of CIE’s outstanding common stock held by a subsidiary and approximately $1.1 billion in aggregate principal amount of senior notes held by a subsidiary (the "CEOC Notes" and, together with the shares of CIE, the "Contributed Assets") to CGP LLC, in exchange for all of CGP LLC’s non-voting units.
Other Events
Summary of 2014 Events
Sale of Properties from CEOC to CGP LLC. On March 1, 2014, we executed a definitive agreement to sell Bally’s Las Vegas, The Cromwell,
The Quad and Harrah’s New Orleans to CGP LLC for a purchase price of $2,000.0 million , net of assumed debt (the "Asset Transaction"). Consistent with the 2013 sale of Planet Hollywood Las Vegas and the Maryland Joint Venture, this transaction will also be accounted for as a reorganization of entities under common control.
Governmental Regulation
The gaming industry is highly regulated, and we must maintain our licenses and pay gaming taxes to continue our operations. Each of our casinos is subject to extensive regulation under the laws, rules, and regulations of the jurisdiction in which it is located. These laws, rules, and regulations generally concern the responsibility, financial stability, and character of the owners, managers, and persons with financial interests in the gaming operations. Violations of laws in one jurisdiction could result in disciplinary action in other jurisdictions. A more detailed description of the regulations to which we are subject is contained in Exhibit 99.1 to this Form 10-K.
Our businesses are subject to various foreign, federal, state, and local laws and regulations, in addition to gaming regulations. These laws and regulations include, but are not limited to, restrictions and conditions concerning alcoholic beverages, smoking, environmental matters, employees, currency transactions, taxation, zoning and building codes, construction, land use, and marketing and advertising. We also deal with significant amounts of cash in our operations and are subject to various reporting and anti-money laundering regulations. Such laws and regulations could change or could be interpreted differently in the future, or new laws and regulations could be enacted. Material changes, new laws or regulations, or material differences in interpretations by courts or governmental authorities could adversely affect our operating results. See "Item 1a - Risk Factors" for additional discussion.
Employee Relations
We have approximately 68,000 employees throughout our organization. There is a clear relationship between employee engagement and customer service. The more engaged our employees, the more our guests benefit from memorable experiences. Engaging employees is therefore a backbone and a driver of our success. We engage our employees in many ways, including fostering open and constructive dialogue, investing in policies and programs that make us a great, diverse and inclusive place to work, caring for our employees’ safety, health and wellness, and providing opportunities for personal growth and development.
Approximately 28,000 of our employees are covered by collective bargaining agreements with certain of our subsidiaries, relating to certain casino, hotel, and restaurant employees at certain of our properties. Most of our employees covered by collective bargaining agreements are employed at properties in Las Vegas and Atlantic City. Our collective bargaining agreements in Atlantic City covering most of the unionized work force there expire in 2014. We reached new collective bargaining agreements covering most of our Las Vegas employees in January 2014, replacing the previous agreements that had expired on May 31, 2013. See "Item 1a - Risk Factors" for additional discussion. On February 20, 2014, we reached agreement with Transport Workers Union Local 721, the union which represents approximately 1,200 employees at the following properties: Paris Las Vegas, Bally’s Las Vegas and Harrah’s Las Vegas. The new agreement expires in five years.
Corporate Social Responsibility and Sustainability
Our Board of Directors and senior executives are committed to maintaining Caesars’ position as an industry leader in the area of corporate social responsibility and sustainability. We maintain an Environmental, Social and Governance Council to guide our activities and allocate the necessary resources. We establish annual targets in key areas and, by engaging employees throughout our entire organization, we drive the Company's performance accordingly.
• The Cromwell temporarily closed in early February 2013 for renovations. The renovated hotel and casino are expected to reopen in the second quarter 2014.
• In September 2013, Caesars entered into an underwriting agreement for the sale of 10.0 million shares of its common stock. The underwriter agreed to purchase the common stock from Caesars at a price of $19.40 per share and exercised its option to purchase 340,418 additional shares. These transactions closed on October 1, 2013, and resulted in approximately $200.6 million of proceeds to Caesars before expenses.
• In October 2013, the Company entered into an agreement to sell its 500-room Claridge Hotel Tower, which was part of the Bally's Atlantic City asset group. The sale was completed in February 2014.
Code of Commitment
For over a decade, we have maintained our Code of Commitment as a guiding framework for our approach to responsible and ethical business. First published in 2000, our Code of Commitment is a public pledge to our employees, guests and communities that we will honor the trust they have placed in us. Our Code of Commitment is deeply embedded in our organization’s communications and culture and widely displayed in all our properties for our guests and all who visit. We use training events to reinforce our expectations of all employees with regard to ethics, compliance and anti-corruption at all levels of the business.
Environmental Stewardship
As part of our Code of Commitment, we accept our duty to help preserve the planet for current and future generations. For the past five years, we have been advancing a strategy to reduce our effect on the environment in our main areas of impact. Our multi-year strategy, CodeGreen, is a structured, data-driven and disciplined program that leverages the passion of our employees and engages our guests and suppliers. Since our baseline year of 2007, we have reduced energy consumption across all our properties by more than 18%, and greenhouse gas emissions by more than 20%, both on an air-conditioned square foot basis, and we reduced absolute water consumption by 7%. Nearly 25% of our total waste was recycled in 2012. Additionally, we have received Green Key certifications at all 31 of our properties with hotels in North America, most at the four key level.
Diversity and Inclusion
We create a dynamic and innovative working culture where individual growth is rewarded, recognized and celebrated. Caesars is the only company in the casino entertainment industry to receive a perfect score, seven consecutive times, on the Human Rights Campaign Corporate Equality Index, including the latest 2013 publication. We were also recognized as one of the top Diversity Leaders by Profiles in Diversity Journal for our innovation, communication, and dedication to diversity and inclusion practices. In 2012, our employees included more than 55% who belong to minority groups. In terms of gender balance, we encourage the advancement of women, and in 2012, more than 40% of the managers in our organization were women.
Caesars Foundation
Established in 2002, the Caesars Foundation (the “Foundation”) is a private charitable foundation funded by a portion of operating income from resorts owned and operated or managed by Caesars. The Foundation’s objective is to strengthen organizations and programs in the communities where our employees and their families live and work, and include our employees in volunteer efforts associated with the causes we support. We maintain our Foundation commitment each year and since its inception, the Foundation has gifted more than $60 million to help support vibrant communities. For more information, visit www.caesarsfoundation.com .
Available Information
Our Internet address is www.caesars.com. We make available free of charge, on or through our website, our annual reports on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K, and amendments to those reports filed or furnished pursuant to Section 13(a) or 15 (d) of the Securities Exchange Act of 1934, as amended (the "Exchange Act"), as soon as reasonably practicable after we electronically file such material with, or furnish it to, the Securities and Exchange Commission (the "SEC"). We also make available through our website all filings of our executive officers and directors on Forms 3, 4, and 5 under Section 16 of the Exchange Act. These filings are also available on the SEC’s website at www.sec.gov. Our Code of Business Conduct and Ethics is available on our website under the "Investor Relations" link. We will provide a copy of these documents without charge to any person upon receipt of a written request addressed to Caesars Entertainment Corporation, Attn: Corporate Secretary, One Caesars Palace Drive, Las Vegas, Nevada 89109. Reference in this document to our website address does not constitute incorporation by reference of the information contained on the website.
ITEM 1A. Risk Factors
Our substantial indebtedness and the fact that a significant portion of our cash flow is used to make interest payments could adversely affect our ability to raise additional capital to fund our operations, limit our ability to react to changes in the economy or our industry and prevent us from making debt service payments.
We are a highly leveraged company. As of December 31, 2013 , we had $23,589.3 million face value of outstanding indebtedness and our current debt service obligation for the next 12 months is estimated to be $2,383.0 million , which includes estimated interest payments of $2,185.9 million . As of December 31, 2013 , CEOC had $19,589.1 million face value of outstanding indebtedness including $285.4 million owed to Caesars Entertainment, and CEOC’s debt service obligation for the next 12 months is $1,967.1 million , which includes estimated interest payments of $1,853.7 million . As of December 31, 2013 , CERP had $4,676.7 million
face value of outstanding indebtedness, and CERP’s debt service obligation for the next 12 months is $417.3 million , which includes estimated interest payments of $381.4 million .
Our substantial indebtedness could:
Any of the foregoing could have a material adverse effect on our business, financial condition, results of operations, prospects and ability to satisfy our outstanding debt obligations.
We may be unable to generate sufficient cash to service all of our indebtedness, and may be forced to take other actions to satisfy our obligations under our indebtedness that may not be successful.
We may be unable to generate sufficient cash flow from operations, or unable to draw under our senior secured credit facilities or otherwise, in an amount sufficient to fund our liquidity needs. Our operating cash inflows are typically used for operating expenses, debt service costs, working capital needs, and capital expenditures in the normal course of business. Our operating cash flows are consumed by our cash interest payments, which totaled $1,899.2 million in 2013. We experienced negative operating cash flows of $109.4 million in 2013, and we also expect to experience negative operating cash flows in 2014 and beyond.
We do not expect that our cash flow from operations will be sufficient to repay our indebtedness in the long term, and we will have to ultimately seek a restructuring, amendment, or refinancing of our debt. We cannot predict at this time whether we will be able to secure any such refinancing, even if market conditions and our financial condition improve between now and then. Even if refinancing alternatives were available to us, we may not find them suitable or at comparable interest rates to the indebtedness being refinanced. In addition, the terms of existing or future debt agreements may restrict us from securing a refinancing on terms that are available to us at that time. In the absence of such operating results and resources, we would face substantial liquidity problems and would likely be required to dispose of material assets or operations to meet our debt service and other obligations. We may not be able to consummate those dispositions for fair market value or at all. Furthermore, any proceeds that we could realize from any such dispositions may not be adequate to meet our debt service obligations then due. We could also be required to reorganize our company in its entirety. Neither the Sponsors nor any of their respective affiliates has any continuing obligation to provide us with debt or equity financing. Even if we are able to refinance our debt, any refinancing could be at higher interest rates and may require us to comply with more onerous covenants, which could further restrict our business operations. For example, the interest rates on CEOC’s first and second lien notes are substantially higher than the interest rates under CEOC’s credit facilities, and the interest rates on CERP’s first and second lien notes, the proceeds of which were used to refinance a portion of our previous CMBS financing, are substantially higher than the interest rates applicable to such CMBS financing. If we are unable to service our debt obligations generally, and if we are unable to refinance our debt obligations that mature in 2015 or thereafter, we cannot assure you that our company will continue in its current state or that your investment in our company will retain any value.
• limit our ability to borrow money for our working capital, capital expenditures, development projects, debt service requirements, strategic initiatives or other purposes;
• make it more difficult for us to satisfy our obligations with respect to our indebtedness, and any failure to comply with the obligations of any of our debt instruments, including restrictive covenants and borrowing conditions, could result in an event of default under the agreements governing our indebtedness;
• require us to dedicate a substantial portion of our cash flow from operations to the payment of interest and repayment of our indebtedness thereby reducing funds available to us for other purposes;
• limit our flexibility in planning for, or reacting to, changes in our operations or business;
• make us more highly leveraged than some of our competitors, which may place us at a competitive disadvantage;
• make us more vulnerable to downturns in our business or the economy;
• restrict us from making strategic acquisitions, developing new gaming facilities, introducing new technologies or exploiting business opportunities;
• affect our ability to renew gaming and other licenses;
• limit, along with the financial and other restrictive covenants in our indebtedness, among other things, our ability to borrow additional funds or dispose of assets; and
We may incur significantly more debt, which could adversely affect our ability to pursue certain opportunities.
We and our subsidiaries may be able to incur substantial indebtedness at any time, and from time to time, including in the near future. Although the terms of the agreements governing our indebtedness contain restrictions on our ability to incur additional indebtedness, these restrictions are subject to a number of important qualifications and exceptions, and the indebtedness incurred in compliance with these restrictions could be substantial.
For example, as of December 31, 2013 , we had $115.0 million of additional borrowing capacity available under our revolving credit facility with an additional $100.5 million committed to back outstanding letters of credit, all of which is secured on a first priority basis. CERP had $269.5 million of additional borrowing capacity available under their revolving credit facility. None of our existing indebtedness limits the amount of debt that may be incurred by Caesars Entertainment.
Our debt agreements allow for one or more future issuances of additional secured notes or loans, which may include, in each case, indebtedness secured on a pari passu basis with the obligations under CEOC or CERP's credit facilities and first lien notes. This indebtedness could be used for a variety of purposes, including financing capital expenditures, refinancing or repurchasing our outstanding indebtedness, including existing unsecured indebtedness, or for general corporate purposes. We have raised and expect to continue to raise debt, including secured debt, to directly or indirectly refinance our outstanding unsecured debt on an opportunistic basis, as well as development and acquisition opportunities.
Our debt agreements contain restrictions that limit our flexibility in operating our business.
Our debt agreements contain, and any future indebtedness of ours would likely contain, a number of covenants that impose significant operating and financial restrictions on us, including restrictions on our and our subsidiaries' ability to, among other things:
As a result of these covenants, we are limited in the manner in which we conduct our business, and we may be unable to engage in favorable business activities or finance future operations or capital needs.
We have pledged and will pledge a significant portion of our assets as collateral under our debt agreements. If any of our lenders accelerate the repayment of borrowings, there can be no assurance that we will have sufficient assets to repay our indebtedness.
We are required to satisfy and maintain specified financial ratios under our debt agreements. See Note 9 , " Debt ," for further information. Under CEOC’s credit facilities, we are required to comply on a quarterly basis with a maximum net senior secured first lien leverage test. While we were in compliance with the quarterly financial covenant as of December 31, 2013, in order to comply with such test in the future, CEOC will need to achieve a certain amount of adjusted EBITDA and/or reduce its first lien leverage. The factors that could impact the foregoing include (a) changes in gaming trips, spend per trip and hotel metrics, which we believe are correlated to consumer spending and confidence generally and spending by consumers for gaming and other entertainment activities, (b) our ability to effect cost savings initiatives, (c) our ability to complete asset sales, including the transaction described more fully in Note 24, (d) issuing additional second lien or unsecured debt, or project financing, (e) reducing net debt through open market purchases, privately negotiated transactions, redemptions, tender offers or exchanges, (f) equity issuances, (g) reductions in capital expenditures spending, or (h) a combination thereof. There can be no assurance that we will be successful in implementing measures to increase CEOC’s adjusted EBITDA or reduce its leverage.
• incur additional debt or issue certain preferred shares;
• pay dividends on or make distributions in respect of our capital stock or make other restricted payments;
• make certain investments;
• sell certain assets;
• create liens on certain assets;
• consolidate, merge, sell or otherwise dispose of all or substantially all of our assets;
• enter into certain transactions with our affiliates; and
As described more fully in Note 24, “Subsequent Events,” we recently announced that CGP LLC will acquire certain assets from CEOC for $2,000.0 million in cash, net of assumed debt ("Subsequent Asset Transactions"). The net cash proceeds from the transaction will impact the calculation of the net senior secured first lien leverage ratio going forward to the extent it reduces first lien debt or increases cash of CEOC. The transaction is an important component of our strategy to obtain future liquidity and comply with our financial maintenance covenant.
Our ability to meet the financial ratios under our debt agreements, including the quarterly financial covenant under CEOC’s credit facilities, can be affected by events beyond our control, and there can be no assurance that we will be able to continue to meet those ratios. If CEOC is unable to meet its quarterly financial covenant in the future, we may need to make cash contributions to CEOC in order to cure any breach and ensure continued compliance with the covenants.
A failure to comply with the covenants contained in CEOC’s credit facilities or our other indebtedness could result in an event of default under the facilities or the existing agreements, which, if not cured or waived, could have a material adverse effect on our business, financial condition and results of operations. In the event of any default under CEOC’s credit facilities or our other indebtedness, the lenders thereunder:
Such actions by the lenders could cause cross defaults under our other indebtedness. For instance, if we were unable to repay those amounts, the lenders under CEOC's credit facilities and the holders of CEOC's secured notes could proceed against the collateral granted to them to secure that indebtedness.
If the indebtedness under CEOC's credit facilities, or our other indebtedness were to be accelerated, there can be no assurance that our assets would be sufficient to repay such indebtedness in full.
Repayment of our debt is dependent on cash flow generated by our subsidiaries.
Our subsidiaries currently own a portion of our assets and conduct a portion of our operations. Accordingly, repayment of our indebtedness is dependent, to a significant extent, on the generation of cash flow by our subsidiaries and their ability to make such cash available to us, by dividend, debt repayment or otherwise. Our subsidiaries do not have any obligation to pay amounts due on our indebtedness or to make funds available for that purpose. Our subsidiaries may not be able to, or may not be permitted to, make distributions to enable us to make payments in respect of our indebtedness. Each subsidiary is a distinct legal entity and, under certain circumstances, legal and contractual restrictions may limit our ability to obtain cash from our subsidiaries. In the event that we do not receive distributions from our subsidiaries we may be unable to make required principal and interest payments on our indebtedness.
We may sell or divest different properties or assets as a result of our evaluation of our portfolio of businesses. Such sales or divestitures would affect our costs, revenues, profitability and financial position.
From time to time, we evaluate our properties and our portfolio of businesses and may, as a result, sell or attempt to sell, divest or spin-off different properties or assets. For example, in November 2012, we sold our Harrah's St. Louis property. In addition, in connection with the previously announced CGP LLC transaction, on October 21, 2013, Caesars Entertainment and its subsidiaries (i) contributed its shares of Caesars Interactive Entertainment, Inc. and approximately $1.1 billion face value of senior notes previously issued by CEOC to CGP LLC in exchange for non-voting units, and (ii) sold to CGP LLC for cash the Planet Hollywood Resort & Casino in Las Vegas, Caesars Entertainment’s joint venture interests in a casino under development in Baltimore (Horseshoe Baltimore) and a financial stake in the management fee stream for both of those properties. See Note 5 , " Caesars Growth Partners, LLC Transactions ."
In addition, on March 1, 2014, we entered into a definitive agreement with respect to the Subsequent Asset Transactions as more fully described further in Note 24 , " Subsequent Events ." The consummation of the Subsequent Asset Transactions are subject to certain closing conditions, including the receipt of gaming approvals, accuracy of representations and warranties, compliance with covenants, obtaining financing and receipt of third party consents. We or CGP LLC may be unable to obtain the necessary approvals or otherwise satisfy the conditions required to consummate the Subsequent Asset Transactions on a timely basis or at all.
• will not be required to lend any additional amounts to us;
• could elect to declare all borrowings outstanding, together with accrued and unpaid interest and fees, to be due and payable and terminate all commitments to extend further credit; or
These sales or divestitures affect our costs, revenues, profitability, financial position, liquidity and our ability to comply with our debt covenants. Divestitures have inherent risks, including possible delays in closing transactions (including potential difficulties in obtaining regulatory approvals), the risk of lower-than-expected sales proceeds for the divested businesses, and potential post-closing claims for indemnification. In addition, current economic conditions and relatively illiquid real estate markets may result in fewer potential bidders and unsuccessful sales efforts. Expected costs savings, which are offset by revenue losses from divested properties, may also be difficult to achieve or maximize due to our fixed cost structure.
We are controlled by the Sponsors, whose interests may not be aligned with ours.
Hamlet Holdings, the members of which are comprised of individuals affiliated with each of the Sponsors, as of December 31, 2013, controls approximately 63.9% of our common stock, and controls us, pursuant to an irrevocable proxy providing Hamlet Holdings with sole voting and sole dispositive power over those shares. As a result, the Sponsors have the power to elect all of our directors. Moreover, Hamlet Holdings has the ability to vote on any transaction that requires the approval of our Board or our stockholders, including the approval of significant corporate transactions such as mergers and the sale of all or substantially all of our assets. As a result, Hamlet Holdings is in a position to exert a significant influence over us, and the direction of our business and results of operations. The interests of the Sponsors could conflict with or differ from the interests of other holders of our securities. For example, the concentration of ownership held by the Sponsors could delay, defer or prevent a change of control of us or impede a merger, takeover or other business combination which another stockholder may otherwise view favorably. Additionally, the Sponsors are in the business of making or advising on investments in companies they hold, and may from time to time in the future acquire interests in or provide advice to businesses that directly or indirectly compete with certain portions of our business or are suppliers or customers of ours. One or both of the Sponsors may also pursue acquisitions that may be complementary to our business, and, as a result, those acquisition opportunities may not be available to us. A sale of a substantial number of shares of stock in the future by funds affiliated with the Sponsors or their co-investors could cause our stock price to decline. So long as Hamlet Holdings continues to hold the irrevocable proxy, they will continue to be able to strongly influence or effectively control our decisions.
In addition, we have an executive committee that serves at the discretion of our Board and is authorized to take such actions as it reasonably determines appropriate. Currently, the executive committee may act by a majority of its members, provided that at least one member affiliated with TPG and Apollo must approve any action of the executive committee.
Reduction in discretionary consumer spending resulting from the downturn in the national economy over the past few years, the volatility and disruption of the capital and credit markets, adverse changes in the global economy and other factors could negatively impact our financial performance and our ability to access financing.
Changes in discretionary consumer spending or consumer preferences are driven by factors beyond our control, such as perceived or actual general economic conditions; high energy, fuel and other commodity costs; the cost of travel; the potential for bank failures; a soft job market; an actual or perceived decrease in disposable consumer income and wealth; the recent increase in payroll taxes; increases in gaming taxes or fees; fears of recession and changes in consumer confidence in the economy; and terrorist attacks or other global events. Our business is particularly susceptible to any such changes because our casino properties offer a highly discretionary set of entertainment and leisure activities and amenities. Gaming and other leisure activities we offer represent discretionary expenditures and participation in such activities may decline if discretionary consumer spending declines, including during economic downturns, during which consumers generally earn less disposable income. The economic downturn that began in 2008 and adverse conditions in the local, regional, national and global markets have negatively affected our business and results of operations and may continue to negatively affect our operations in the future. In addition, the Atlantic City gaming market in particular has seen a massive decline. For example, according to the Atlantic City Gaming Industry Impact Report, prepared by the Office of Communications, State of New Jersey Casino Control Commission, reported gaming revenues for Atlantic City properties have declined from $4,920.8 million in 2007 to $2,862.1 million in 2013. During periods of economic contraction, our revenues may decrease while most of our costs remain fixed and some costs even increase, resulting in decreased earnings. While economic conditions have improved, our revenues may continue to decrease. For example, while the gaming industry has partially recovered from 2008, there are no assurances that the gaming industry will continue to grow as a result of economic downturn or other factors. Any decrease in the gaming industry could adversely affect consumer spending and adversely affect our operations.
Additionally, key determinants of our revenues and operating performance include hotel average daily rate ("ADR"), number of gaming trips and average spend per trip by our customers. Given that 2007 was the peak year for our financial performance and the gaming industry in the United States in general, we may not attain those financial levels in the near term, or at all. If we fail to increase ADR or any other similar metric in the near term, our revenues may not increase and, as a result, we may not be able to pay down our existing debt, fund our operations, fund planned capital expenditures or achieve expected growth rates, all of which could have a material adverse effect on our business, financial condition, results of operations and cash flow. Even an uncertain economic outlook may adversely affect consumer spending in our gaming operations and related facilities, as consumers
